When an employer seeks a temporary restraining order (“TRO”) or temporary injunction in a Tennessee federal court against a former employee, or other person or entity with whom it had a non-compete agreement, to succeed, it must show irreparable harm will result to it if the TRO or injunction is not granted. (For purposes of this post, a non-compete agreement refers to an agreement that prohibits competition, use of confidential information, or solicitation of customers).
To obtain a TRO or temporary injunction, a federal district court in Tennessee must consider four factors: (1) The plaintiff’s likelihood of success as to the merits; (2) whether the plaintiff will suffer irreparable harm or injury if the relief is not granted; (3) whether substantial harm will be caused if the relief is granted; and (4) the effect of the injunctive relief on the interests of the public. The irreparable harm factor is indispensable. While a district court may grant a TRO or temporary injunction even where the plaintiff has not shown that it is substantially probable that the plaintiff will ultimately win the case on the merits, to grant either a TRO or a temporary injunction, a Tennessee federal district court must make specific findings that the plaintiff will suffer irreparable injury.
What is considered irreparable injury by Tennessee federal courts? An injury is irreparable if it cannot be compensated by money damages. In non-compete cases, a former employer or business cannot be compensated for lost revenues: From customers and contracts it can never prove it lost; from confidential information that was used by others to gain customers, sales or otherwise to increase profitability; or from lost customer goodwill. When someone breaches a non-compete agreement, the injured party will not be able to quantify its damages in many, if not most, cases. If it cannot quantify them, it cannot prove them and recover them. Thus, without injunctive relief, the injured plaintiff will suffer irreparable injury.
As a general rule, Tennessee federal courts recognize that irreparable harm occurs when a non-competition agreement is violated. In fact, they have recognized that, when a non-compete agreement is breached, in most cases, irreparable injury will result. The below are summaries of two instructive cases where former employees had signed non-compete agreements with their former employers.
Ever-Seal, Inc. v. Halferty (M.D. Tenn. 2022):
- The defendant, a former employee, had worked for his former employer for about a year and a half before he was terminated
- The defendant was a salesman who was promoted to sales manager
- The defendant had access to, and learned, his former employer’s marketing and growth plans; its sales methods; its customers and prospective customers; and had access to his former employer’s confidential information about its processes and methods for sealing wood and concrete
- While employed, the defendant had been put in a position to communicate directly with his employer’s customers
- After his employment was terminated, the defendant former employee began offering services identical to those of his former employer, and even submitted bids on some of the same projects on which his former employer bid
Held: The district court held that a temporary restraining order was appropriate, and that the former employer had proven that it would suffer irreparable harm if the defendant former employee was not enjoined from competing against it. The court found that the irreparable injury would result from lost business and customer relationships.
F.S. Sperry Company, Inc. v. Schopman (E.D. Tenn. 2018):
- The plaintiff was a former employer of the defendants, who were former employees
- The plaintiff was a refractory contractor, and the three defendants were a former branch manager, a sales manager and a construction manager
- The defendants simultaneously resigned from employment with the plaintiff and started a competing business
- The district court found that, while employed at plaintiff, the defendants had access to confidential customer information including customer lists, pricing information, and internal cost structures
- The district court found that, when the defendants left employment, they took confidential information with them and then began contacting their former employer’s customers and underbidding their former employer
Held: The court found injunctive relief warranted and that the plaintiff had proven irreparable injury. The court aptly stated that “use of another company’s proprietary information can be devastating” and that money damages cannot adequately compensate for this type of damage.
The above cases prove what has been the experience of this firm in handling non-compete cases —- irreparable injury is not usually too difficult to prove, though no lawyer seeking injunctive relief should assume that proving it can be taken lightly.